Biotech risky, but promises big returns for savvy investors

TWO years ago it was Mesoblast, when its share price rose fivefold in a matter of months.

Last year it was Sirtex's turn, if you put to one side market heavyweight CSL. Sirtex's share price trebled as it ran from $4 to $13, which was crowned last month by its elevation into the S&P/ASX 200 Index and the sell-down of part of the holdings of its three main shareholders, which has helped to boost liquidity.

Overall returns from the biotech sector can be patchy, but for the savvy investor it promises big returns.

The potential for heady gains has prompted a number of private client brokers to encourage clients to look at committing some funds to biotechs for speculative gains.

But it depends on your risk appetite.

''There are stocks to take a look at - depending on your risk profile,'' said a research analyst at one private client broker, who did not wish to be named.

''Mesoblast will have data coming in the next few months which may rekindle interest.

''Then there is Starpharma and Phosphagenics which are also worth a look.''

Macquarie Equities recently highlighted Phosphagenics to its clients, pointing to an approaching key clinical trial for its pain relief therapies, with Nomura Australia recently slapping a ''buy'' recommendation on the stock.

Similarly, Starpharma recently won support from CIMB Australia, which placed a ''buy'' on the stock following its recent selloff amid caution on drug trial results.

Elsewhere in the sector, the weakness in Prima Biomed's share price has attracted some analyst interest, and optimism continues with Clinuvel, but its progress has been a long time coming.

Small cap fund managers are often willing to play among mining hopefuls but refuse to touch biotechs, with a paucity of specialist analysts able to interpret clinical data and keep abreast of industry developments.

The difficulty, and high cost, of progressing drugs through the lengthy clinical trial process has encouraged many companies to focus on areas promising quicker cashflows and easier entry such as biomarkers.